Office Depot-OfficeMax CEOs face off in unorthodox leader search

Office Depot Inc. and OfficeMax Inc. set up a competition of the bosses, saying they’ll wait to pick whether either of their chief executive officers will be in charge when the companies merge.

The decision not to decide may lead to management challenges later, said executive recruiters and corporate governance experts who were unable to recall a similar case. The shares of both companies declined yesterday, with Office Depot dropping 17 percent in the biggest plunge since April 2010.

“We always tell our students that you need to decide three things before a merger: price, board of directors and CEO,” said Jay Lorsch, a professor at Harvard Business School in Boston who has studied boards and management for 25 years. “I don’t think this bodes well for the merger if they can’t agree on a CEO. I’ve never seen anything like it.”

A board with equal representation from each company will be created and a new CEO will be chosen after the deal is complete. Neil Austrian, Office Depot’s 72-year-old chairman and CEO, and Ravi Saligram, the 56-year-old president and chief executive of OfficeMax, will both be considered in the search and maintain their jobs through the process, the companies said yesterday in a statement.

Questions of leadership are usually decided before a deal is finished. Creditors of bankrupt AMR Corp., the parent of American Airlines, picked US Airways Group Inc. CEO Doug Parker to run the merged company. They made that call even after American’s chief executive, Tom Horton, pushed to retain the job, people familiar with the decision said last week.

Regulatory Approvals

Office Depot agreed to buy Naperville, Illinois-based OfficeMax for $1.17 billion after losing sales to online rivals and to Staples Inc., the largest U.S. office-supplies chain. Regulatory approvals, including one from the Federal Trade Commission, will take seven to nine months and the companies will operate as competitors until then, Office Depot’s Austrian said yesterday on a conference call.

“It would be premature to select a CEO until we understand what the FTC is going to do,” Austrian said in response to questions from analysts about the decision not to select a new CEO.

Austrian came out of retirement in November 2010 to lead Boca Raton, Florida-based Office Depot temporarily and was given the job full-time in May 2011. Saligram took the helm at OfficeMax in November 2010 after serving as executive vice president at Aramark Corp.

The structure of yesterday’s announcement is very unusual and may signal that directors aren’t convinced they currently have the right leader for the combined company, said Pat Cook, an executive recruiter who runs Cook & Co. in Bronxville, New York.

“Usually the acquiring company decides who will be CEO before they make any announcement about the deal, so this is a very odd happenstance,” said Cook, adding she isn’t aware of a similar structure in past mergers. “If directors don’t think they have a CEO who can run a company that’s become much larger and more complex, the best thing to do is an outside search.”

Progress CEO Bill Johnson, previously selected to run the combined companies, was ousted hours after the merger was announced and replaced by Duke’s chief executive, Jim Rogers. Regulators objected to the boardroom coup. Rogers agreed to step down by the end of this year in a regulatory settlement.

Even the decision to split the board isn’t good governance, said Charles Elson, who is director of the John L. Weinberg Center for Corporate Governance at the University of Delaware and has been studying governance for more than 20 years. He pointed to the deal between Time Warner Inc. and AOL as an example.

“You end up with a clash of cultures,” said Elson, who added he’s not aware of a similar case where a CEO was picked after the merger by a split board. “You usually decide these things at the time of the merger, not after. This is just going to create turmoil when stability is key.”

Researchers around the world are unlocking mysteries of the brain and causes of mental disorders in a “quiet neuroscience revolution”.

Sponsored by

Sponsored by Chartered Professional Accountants Canada

Management & Strategy Solutions was produced by Postmedia Works on behalf of Chartered Professional Accountants Canada for commercial purposes. Postmedia’s editorial departments had no involvement in the creation of this content.